Billshrink: A Fast Way to Shrink Your Bills

Finding the cheapest cell phone provider or credit card isn’t easy. You can spend days pouring over paperwork, trying to figure out what fees actually mean. But BillShrink makes all of that easier.

BillShrink will go out and find you the best credit card for your purposes. By answering a few questions about your typical spending habits — such as where you shop the most often — BillShrink will find the card that maximizes rewards, minimizes fees and generally meets your needs. The site can help you narrow down your search by limiting rewards and other factors: if you know that you want to save up points for a vacation some time soon, maybe you specifically want a card that will get you miles you can trade for plane tickets.

This site can do the same thing with your cell phone bill. You have the option of allowing BillShrink to access your actual bill by providing your cell phone number and password. If you’re uncomfortable with that option, you can also estimate your bill. From there, you can answer a few questions about how often you use your phone, where and details like text messaging and the number of lines. If you have a particular phone that you simply have to have (like a Blackberry to handle work calls), you can actually set the phone type as a search limit.

So far, BillShrink only offers comparison services for credit cards and cell phones, although it looks likely that they’ll expand to other services in the future. I’ve got my fingers crossed that they’ll check out internet service providers next. In the meanwhile, BillShrink is a pretty useful tool. It provides an easy way to compare credit cards — one of the most difficult categories of bills simply because of the thousands of options available.

You can even set up a standing request with the BillShrink website to be notified anytime a better credit card offer becomes available — the same goes for cell phone plans. Simply submit your email address along with your search criteria, and the site will automatically email you if it finds a better deal.

There are a number of personal finance tools available on the web these days, and most take a broader view than BillShrink. But that narrow focus makes BillShrink particularly useful. Don’t expect to spend days, or even hours, on BillShrink. Instead, you’ll spend only a few minutes getting results on BillShrink, even if you take the time to set up notifications. You might spend a little longer changing your credit card account, but that’s about it. Using BillShrink is a simple step you can take this afternoon and not have to worry about for a while. Consider taking five minutes sometime today and see if you’re really getting the best deal on your cell phone and credit card.

What Does the Freddie Mac and Fannie Mae Bailout Mean?

On Friday, Henry Paulson (the U.S. Secretary of the Treasury) and James Lockhart (the director of the Federal Housing Finance Agency) announced that the U.S. government is putting Fannie Mae and Freddie Mac into conservatorship — the government is bailing the two companies out. The move is an effort to guarantee that there is still money available to the two companies so that they can continue buying MBSs (mortgage-backed securities) and allowing other banks to loan money.

Paulson’s move is already being described as “one of the most sweeping government interventions in private financial markets in decades.” Journalists and economists have spent the weekend discussing the consequences for the government, the companies and the economy. But what does a bailout mean for the rest of us?

Paulson’s Plans for Conservatorship

During the announcement, Paulson named four things that he planned to do with Freddie Mac and Fannie Mae:

1. The two companies will modestly increase their MBS portfolios (meaning that smaller banks will be able to issue more mortgages) until the end of 2009. Starting in 2010, the two companies will start reducing their MBS portfolios. For the most part, that means that Fannie Mae and Freddie Mac will be selling off the mortgages they hold to other companies, starting in 2010. Depending on how willing other companies are to buy mortgages, it may get harder to get a mortgage in 2010.
2. The Treasury Department and the FHFA will use Preferred Stock Purchase Agreements to make sure that both companies maintain a positive net worth, as well as guarantee to debt holders that they will be paid.
3. The Treasury Department is creating a new ’secured lending credit facility’ — a governmental agency that can lend money to companies like Fannie Mae when they can’t get loans elsewhere.
4. The Treasury Department is temporarily buying MBS in order to make sure that banks are capable of offering mortgages even with the normal backers / buyers of MBS slowing down their purchases.

Fannie Mae and Freddie Mac Stocks

The government isn’t helping out stockholders as a part of the bailout. Anyone with stock in either company is no longer receiving dividends and the values of those stocks have dropped dramatically. The fact that the government is stepping in has actually caused both stocks to fall further.

There’s no guarantee that the stock situation will improve, either. Unfortunately, if you hold stock in either Freddie Mac or Fannie Mae, you have very few options.

Freddie Mac and Fannie Mae Mortgages

If you currently have a mortgage held by either company, very little changes. You still have an obligation to make your payments and there shouldn’t be any changes to how the company operates at that level. The same goes for any other loans you have from either company, as well. The conservatorship is specifically set up to make sure that Freddie Mac and Fannie Mae continue operations as normal.

At upper levels, however, there will be quite a change up — executives and boards at both companies will be leaving.

TransUnion Faces Class Action Settlement, You’re Probably Involved

Unless you’ve managed to avoid borrowing money in the past 21 years — we’re talking everything from credit card purchases to buying a home — you’re probably eligible for a class action settlement that TransUnion is offering.

TransUnion is offering free credit-monitoring services to settle the claims that the company had illegally distributed private information about consumers for marketing purposes. TransUnion continues to deny any wrongdoing, but millions of U.S. consumers are eligible for this settlement. The settlement gives consumers the ability to sign up for either six or nine months of credit monitoring. The eligibility criteria is extremely broad: if you had any open credit account or line of credit between Jan. 1, 1987 and May 28, 2008. More than 150 million consumers are eligible for this settlement, and the law firm representing the plantiffs in the class-action suit against TransUnion says that fewer than 400,000 have signed up for the settlement so far.

The deadline to take advantage of this settlement is Sept. 24. To register, you’ll need to visit the site established to manage the settlement or call 866-416-3470. Remember, if you decide to take advantage of this settlement and you are married, your spouse will need to register — even if you share joint credit accounts, both you and your spouse have separate credit reports.

The settlement has not yet been finalized, and won’t be until after Sept. 24. When you register, you’ll have the option of selecting between four ‘payments’:

• Six months of credit monitoring.
• A cash payment (if money is available for distribution).
• Six months of credit monitoring and a potential cash payment.
• Nine months of enhanced monitoring service. (If you select this option, you can’t get any cash.)

Before you leap at that cash payment, you should know that it won’t be available utnil at least two years after the settlement is finalized by the court — if ever. And we’re certainly not talking about much money. TransUnion has agreed to pay $75 million into the settlement fund. Out of that, $150,000 immediately goes to nonprofit organizations. Then the lawyers’ fees, as well as any other fees or expenses, are paid out. Then, judgements and settlements for individual damage claims will be paid. Last in line are the regular consumers who register for the settlement. Even if you wait the full two years, there is no guarantee that you’ll get an actual check out of it. The price of TransUnion’s credit monitoring service for six months is $59.75. The nine-month version retails for $115.50. You’ll be able to start your six (or nine) months of credit monitoring just six months after the settlement is finalized. As long as you will use it, the credit monitoring option is probably the best bet.

During the time you will be covered by the credit-monitoring plan, you’ll be able to keep a closer eye on your credit than normal, allowing you to theoretically catch identity theft and fraud before it becomes a major issue. TransUnion notifies you of any major changes to your credit report within 24 hours, as well as allows you to lock your credit report. But remember, credit monitoring is meant to help you spot fraud and other problems — not prevent it.

The Secret to Getting Lower Interest Rates

It’s surprisingly easy to get a lower interest rate on your credit card. My husband had an American Express card with a fairly high interest rate and, last week, he decided to ask for a lower rate. Yep, all he had to do was ask and American Express gave him a better deal.

There were a few small complications in the matter: he had a credit card with rewards points and there simply wasn’t a lower interest rate that American Express could give him on that card. But the company was more than happy to switch my husband over to another card with a much lower interest rate if he was willing to give up his rewards points. He thought it over and, yes, it was definitely a better proposition.

Credit card companies don’t ever offer to lower your interest rate out of the blue. Even if you improve your credit significantly, they’ll leave your interest rate alone because they make more money if that interest rate is higher. But that doesn’t mean that American Express, Visa and all the rest aren’t willing to make you a better deal. You just have to step up and ask.

It is easier if you have a little bit of leverage, of course. The best leverage is being able to tell your card’s representative that you’ve been on time with every payment. Being able to tell your credit card company about a great deal you’ve just received from one of their competitors doesn’t hurt, either. If you’re considering taking your business elsewhere, most credit card companies will do what it takes to keep your account. Occasionally, they might call your bluff though — but there are plenty of offers out there with zero-interest transfers if you decide to go through with changing cards.

The important thing to do is call up your credit card company and ask. Ask for a lower interest rate, ask to have a fee refunded, ask for a better deal. After all, the worse they can do is say, ‘no.’ The best they can do is significantly reduce the money you’ll end up paying them. This tactic can be applied (with varying degrees of success) to other credit situations. Your mortgage lender may not be willing to negotiate on the amount you pay but if you’re having trouble, as so many people are, they might be able to find some sort of solution. But if you don’t ask, all you have to look forward to is struggling quietly; if you don’t talk to the representative in charge of your account, you can’t take advantage of policies that afford companies a little leniency when it comes to good customers.

The Big Secret: How Credit Card Companies Apply Payments

When you send off your monthly payment to the credit card company, it just gets applied to your debt, right? Some goes to paying interest, but it makes sense to think that credit card companies just automatically apply payments to your oldest debt.

That’s not how it works, though. Credit card companies are out to make a profit and they can make a lot more money if they handle your payments in other ways.

Your credit card provider does have to tell you about how they allocate payments, according to law. But most of us to examine all that paperwork that comes with a credit card as closely as we ought to. We really all ought to read the ‘payment allocation provision,’ though.

The Payment Allocation Provision

This provision tells you how your credit card company handles your payment, although it doesn’t necessarily go in to great detail. Look at Capital One’s payment allocation provision:

We may allocate payments and other credits and proceeds among the various segments of your account, and to charges and principal due within each segment, in any way we determine, including balances (including new transactions) with lower annual percentage rates (APRs) before balances with higher APRs.

Basically, the provision says that your credit card company is going to apply your payment however they wish. If, for instance, you owe money on your credit card that is accruing interest at different rates — maybe you are charged one rate for regular credit card transactions and another for cash advances — the credit card company can apply your payments to whichever portion of your debt they choose. It’s practically guaranteed that they’ll choose the portion with the lower interest rate for you to pay off first. After all, credit card companies make more money on debts with higher interest rates.

Your Options

Credit card companies have the legal right to chose how to allocate your payments. Most will continue to do so, no matter what you do. You shouldn’t just give in, though. You do have options.

You can call and ask your credit card company about their options. In general, they may not have many, but some companies allow you to mark your payments in such a way that they will be applied to the portion of your debt you prefer. This option is more common with student loans or car loans.

You can also transfer your debt to a 0 percent card. This option isn’t perfect, but can help as long as you are committed to paying off your credit card debt. Avoid making any other purchases on your 0 percent card, though: as soon as you do, you fall back into the same interest trap.

Beyond that, the best thing you can do is eliminate your credit card debt as soon as you can. It may seem impossible, but the faster you can reduce credit card debt the less interest you will wind up owing.

Just remember: credit card companies set their businesses up in their own favor. They like handing out credit cards — the more credit cards out there, the more money they make.

Tell the Fed Your Credit Card Story

So far, over 30,000 people have sent stories to the federal banking regulators who are working to reduce credit card abuses. The Consumer’s Union has a simple form to allow you to send your story to the Federal Reserve here. But you only have until August 4th — that’s Monday — to make sure your comments are heard.

The Federal Reserve already has some proposals that they’re considering to drastically cut the opportunities for credit card companies to abuses their customers: federal banking regulators want to stop credit card companies from raising interest rates on existing balances. They also want to stop the common practice of applying your monthly payment to the portion of your debt with the lowest interest rate, a technique that helps credit card companies make more money off the amount you owe. They are also looking at ways to prevent companies from sending bills that you literally cannot pay in time — you know, those frustrating bills that you get the day they’re due, or even after the due date. You can also comment on these proposals through the same form, and even make suggestions, if you would like to.

Personally, there is one credit card practice that I think absolutely needs to be prohibited: most credit card companies charge you a fee if you pay your bill online or by phone. Your payment is more likely to arrive late if you send it in by mail; there are just more opportunities for delays, human error and factors you can’t control. That means that credit card companies are more likely to get late fees if you mail a check than if you make a payment online. It seems like credit card companies are trying to set us up for failure. Unfortunately, the Federal Reserve isn’t currently considering making a change to the laws governing payment methods.

There are also a few other suggestions that consumer advocacy organizations, such as the Consumers’ Union, would like to see on the agenda, but aren’t there yet. If any sound like a good idea to you, you might consider submitting comments to that affect.

• Limiting high “penalty” rates, and how long a card issuer can keep you at those levels.
• End random changes in interest rates for future purchases “at any time for any reason.”
• End all retroactive interest rate hikes, even if there has been one payment that is 30 days late.
• Prohibit account-opening fees that are more than 10 percent of the
  credit limit, rather than the Fed’s proposed 50 percent. Multiple
  over-limit fees also should be banned during a single billing cycle.

Any comments that you submit will become part of the Federal public record, along with your name and contact information. That’s because the Federal Reserve is using these comments to guide public policy and must be transparent about their actions. However, if you are concerned about your name appearing on such government documents, you may chose not to share your comments and stories.

7 Hints To Prevent Credit Card Fraud

In the last year, it’s estimated that criminals were able to steal $3.2 billion through credit card fraud. Worse, the numbers of credit card frauds continue to rise. It’s beyond the point that cops are likely to be able to catch a crook if he commits that sort of crime. Hoping that you’ll get your money back if something happens shouldn’t be your only solution, though.

There are steps you can take to protect yourself from credit card fraud. It’s up to you, though — saying that you plan to start doing these things in the future isn’t going to stop a problem now.

1. Review your statement as soon as you get it. As soon as you spot your credit card bill in the mail (or online), open it and go over it. Look for any charges you don’t recognize.
2. Keep your receipts. You’ll want to double check your receipts each month against your credit card, to make sure that charges are correct. Don’t throw away your receipts — there are people with no compunction about rooting through your trash. Personally, I keep all my receipts at least until I finish my taxes for the year, just in case I can deduct something. But if you choose to get rid of your receipts sooner, you should at least shred them before throwing them out. You can get a decent shredder for under $40 at most office supply stores.
3. Shred credit card applications. You should be shredding any sensitive information before throwing it out — and credit card applications are definitely sensitive. It’s very easy for someone to complete one of those pre-approved applications in your name and rack up bills without your knowledge.
4. Shop online carefully. Not all websites are completely secure, so you should think about how reliable a site seems before you purchase through it. Big sites that are known to do lots of transactions are generally okay, but if a website looks like no one has ever bought through them before, be cautious.
5. Keep an eye on your card. When you use a credit card to pay for something, watch where it goes. It may not always be in your sight, but the more observant you are, the more likely you are to catch someone trying something with your card.
6. Carry only the cards you need. On any given day, do you really need to carry a stack of credit cards thick enough to play a round of poker? Odds are that you’ll only need one or two, so leave the rest of the cards at home. This goes double if you’re traveling — the more cards you carry, the more likely you’ll lose at least one.
7. Write down your numbers. If anything does happen to your cards, you’ll need the contact information on the back of your card, as well as your account number on the front. It’s kind of a Catch 22, but you can make the situation easier by already having a list of both numbers. Want to make it super easy? Photograph both sides of your card with a digital camera, and save the files somewhere safe.

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Cutting the Credit Cords

This weekend, the New York Times ran a series of articles on debt in America. It’s definitely worth reading, but if you don’t have the time to go through all of them, there are two paragraphs that I think are absolutely key:

Average late fees rose to $35 in 2007 from less than $13 in 1994, and fees charged when customers exceed their credit limits more than doubled to $26 a month from $11, according to CardWeb, an online publisher of information on payment and credit cards.

Mortgage lenders similarly added or raised fees associated with borrowing to buy a home — like $75 e-mail charges, $100 document preparation costs and $70 courier fees — bringing the average to $700 a mortgage…

Credit card interest rates are on the rise, as well, even for those customers with good credit.

It costs money to buy on credit, whether you’re purchasing a new home or just putting a bag of groceries on your Visa. Credit is expensive, and while various lenders work on recovering from the credit crisis, it’s going to get even pricier. It’s important to remember that credit card companies don’t send you all those preapproved offers out of the kindness of their hearts. They’re marketing their businesses in order to make money — from you.

There is only one way to avoid paying fees and interest, and that’s to stop using credit. Personally, I’m not entirely there yet, and I still have some debt I need to pay off, but I’m working on it. I know it’s the only way to go.

Very few people are ready to go completely cold turkey on their credit cards — very few can truly afford it. But there are steps that you can take.

• Use only one line of credit. You’ll still have to make payments on your other cards and lines of credit, but if you’re only adding to what you owe with one card, you will have a better handle on what you spend.
• Pay cash wherever you can, especially for anything beyond the bare necessities. You have to buy groceries and pay rent, but for consumer purchases, using only cash can help teach you to save up for purchases. Even better, you don’t pay any fees or interest on cash purchases.
• Don’t open new lines of credit. For mortgages and other loans, a big chunk of the fees occur whenever you get a new loan or open a new account. The same is true for refinancing and other major changes to your account.

There are plenty of personal finance advisers out there recommending extreme solutions. If you can handle an extreme approach to paying down debt and getting away from needing credit, I’m all in favor of it. Most of us need slower and steadier methods, though. We all have to look at our own financial situations and chose the best path for ourselves.

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Credit Companies Are Getting Personal

Get ready for yet another sign of the tough financial times. In an effort to cut the losses from charged off and delinquent credit accounts, credit card companies are starting to look at much more than your credit score and history, like your job and where you live. The new criteria go beyond whether you simply are approved or denied for a card. Existing customers are seeing their credit lines being drastically reduced without warning, some by as much as $50,000.

Where You Live
We know that banks are starting to use new and complicated application criteria to weed out potential ‘bad’ loan customers, and credit card companies are hot on their heels. Customers who live in areas hardest hit by the housing crisis, such as California, Nevada, and Florida will either be outright denied, or have a much lower credit line than people in neighboring states. Marketing campaigns in those areas and others have been limited, and automatic credit line increases have been halted.

What You Do
Your job may also determine your credit worthiness, and we’re not talking about how much you make a year. People with jobs in finance, construction, and even entertainment industries are being targeted as ‘high risk.’ Even those who have been faithful, paying customers for years suddenly are finding themselves curtailed. From The Wall Street Journal:

Peter Schiff, president of securities-brokerage firm Euro Pacific Capital in Darien, Conn., has been downbeat on the economy for months but never thought he was the kind of customer that AmEx would worry about. That changed a few months ago when one of his employees tried to book a block of hotel rooms for a seminar on the firm’s corporate AmEx card. The card was declined, and Mr. Schiff subsequently discovered that AmEx had cut his $40,000 credit line to $4,500.
(WSJ Online, by Robin Sidel, Monday, June 23, 2008)

Cardholders who find themselves with slashed credit lines are being asked for a lot more personal information than in the past. Small business owners in particular are being essentially audited to make sure of their solidarity. Credit card companies are hiring third parties to do their research work, finding trends, identifying risky customer groups, and conducting investigations on those ‘at risk’ cardholders.

This practice, while designed to minimize loss, may backfire. Many customers who find their credit lines cut or interest rates inflated are trying to contact their credit companies to either demand explanations, or to have their previous status re-instated. Almost all of them are finding those companies unyielding. Usually the customers will close the account and look elsewhere for the limits they had previously. An even worse scenario is one where a customers credit limit is cut or their interest rate is raised to the point where they will fall into default even quicker.

Each companies criteria for selecting customers is different, which is why it is possible for one company to deny a customer and another to approve them. The techniques for determining customer risk are usually a closely guarded industry secret. What most are saying is that FICO scores need to be higher, and that across the board banks and credit card companies are getting much more selective and conservative.

Cut Down on The Credit Cards

It seems like every day there’s another preapproved credit card waiting in my mail box. And some of those offers look pretty tempting — after all, who wouldn’t want a 0 percent interest rate if only for a few months. It doesn’t stop at the mail box, either — every store at the mall has it’s own credit card, offering a few extra coupons and special sales. It’s easy to pick up enough credit cards to play poker with.

Having so many cards can be a very bad thing, though. Even if you aren’t tempted to use them, there are reasons you need to cut that deck. Personally, I’m down to two cards and I plan to keep it that way. One is my great deal, cash back card that I rely on for most purchases and the other is my emergency card. A few more cards probably wouldn’t hurt me, but there are plenty of reasons to keep my wallet thin.

Most importantly, having a lot of available credit can actually be detrimental if you’re applying for a mortgage or other loan. Think of it this way: between 15 credit cards, you might have $15,000 worth of credit available beyond your current balances. If you apply for a mortgage the lender will want to know if you can pay off the mortgage even if you were to make $15,000 worth of purchases on those cards. The lender will assume that you have 15 cards because you’re planning to make purchases on all 15 of them. It’s a reasonable assumption, too — why bother to have so many different cards, otherwise?

Numerous credit cards can also open you up to a greater risk of identity theft. It’s simple math: the more places your personal information is floating around, the higher the odds that someone is going to take a look at it that shouldn’t. And if you have a record of taking out new credit cards, you may miss someone using your identity to do the same.

It’s easy to trip up with extra credit cards, too. The more cards you have, the more likely you are to miss a payment, even through plain old forgetfulness. It’s also easier to rack up debt, even if you’re trying to be responsible. If you don’t look at every statement every day — and honestly, who does? — it’s easy to forget that you charged a certain amount on a card and need to pay it off.

If your wallet needs to lose some of its credit card weight, get a copy of your credit report to help you decide which cards to cancel. You always want to keep your oldest account open — otherwise, your credit history can look shorter than it really is. Besides that oldest card, if there are any cards that you simply don’t use, I’d recommend canceling those first. From there, it’s simply a matter of checking which of your cards has the best interest rates combined with the best perks (cash back, for instance).

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Searching For A Job? Check Your Credit First

We all know that a good credit score is instrumental to getting a decent deal on a mortgage. But did you know that a bad score could keep you from landing a job?

Employers don’t want to hire applicants who have problems in other parts of their lives, and that includes debt. It’s more than just wanting workers to keep their minds on their jobs, too. Employees with heavy loads of debt are much likelier to harm a company — think embezzlement, corporate espionage or misuse of company funds. What employer wouldn’t want to prevent those sorts of things from happening to their businesses?

During the application process for a new job, your potential employer might ask you to sign a form giving them permission to run a check on your credit. The credit agency won’t give them a full copy of your report, but they’ll handover the grand majority of your information. Legally, credit reporting agencies cannot provide an employer with the following:

• your marital status
• your year of birth
• your account numbers

Most employers are simply looking for two things: warning signs that you might be a financial risk and a general sense of your responsibility. If you are submitting applications, your best bet is to have good credit. But many of us have a few slip-ups here and there on our records. For the average job applicant, it can be hard to tell just what might cause a problem with an employer.

There may not be too much for you to worry about, though. Most hiring managers are not going to pounce on every little mistake. There are also a few steps you can take to rebuild your credit.

• Consider paying your monthly payments in full and on time a priority — even if you’re unemployed.
• If you can’t make your payments, contact your creditors and establish some sort of payment plan before you become delinquent.
• Avoid opening new accounts or applying for new credit just before starting your job hunt.
• Reduce your debt (the money you owe) to credit (the money lenders will give you) ratio.

If you’re still uncomfortable with your credit report, you can refuse to grant permission for prospective employers to look at it. Before you make that decision, though, you should be aware that many employers will remove your name from consideration immediately. They’ll assume that you have something to hide. A better approach — although not without risks — is to grant permission but ask the hiring manager to discuss your credit report with you before making a decision. Assuming your interviewer agrees, you’ll have a chance to point out extenuating circumstances and argue your case.

If you’re planning a career in banking, security, finance, public service and other sensitive fields, your credit report can be crucial. It’s worth making the effort now to improve your credit and build a history that you wouldn’t mind your employer looking over.

Why You Should KEEP Your Credit Cards

With all the talk about why credit cards should be avoided, especially for people whose credit history is questionable, I thought it might be a nice change to talk about the good that credit cards can do. Here are a few reasons not to get rid of every credit or charge card you have.

1. Charge cards with zero balances help build two things. They help you build a longer credit history, making you look more financially stable to potential lenders. The zero balance also helps to widen the debt to available credit ratio. The trick with paid off credit cards is to keep track of them—make sure that you aren’t incurring any annual fees and make sure that they have your current information.

2. In my post about saving money at the summer sales, I made not of the extra discounts that are often offered to people who have store accounts. There are plenty of department stores that offer customers a discount if they pay with the store’s charge card. This discount is often as much as fifteen percent! The best way to shop at these stores is to pay for your purchases with your charge card and then either pay the card’s balance with another cashier or to go home and immediately write a check for the amount you just spent and send it off to the charge company.

3. Some credit cards come with things like bonus points, frequent flier miles and cash returns. The best way to use these cards is just like the way you would use a store charge card. Use the credit card to pay for your purchase and then go home and immediately pay the balance. Often you can do this online!

4. By using your cards regularly (and paying them off regularly) you are building a positive credit history and increasing your credit score! Future lenders, when they look at your credit history will see how responsible you are with your credit cards and how quickly you pay your balances and be more likely to loan you money because you have proven that you are financially responsible.

5. If you start canceling all of your credit cards, when you look to purchase a car or a home later on, your lender might wonder why you were so hasty to close your accounts. If it looks like you don’t trust yourself, why would the banks trust you?

These are just a few reasons to keep your credit and charge accounts open. Obviously you know yourself and if you feel like the temptation of having available credit might be too hard too much then you need to follow your instincts. If, however, you feel like you’ve learned to handle your credit responsibly, you should think twice before you start cutting your cards and contacting the companies. Sometimes having credit available to you can be a great thing!

Do Bigger Payments Really Make For A Faster Payoff?

Classic advice for handling any amount of debt — mortgages, credit cards, etc. — is to pay more each month than is actually required. For instance, if I had a monthly credit card bill of $100, but I had an outstanding balance of $10,000, with 10% interest, it would take me 213 months (or 17 years and 9 months to pay off that card). But if I could make payments of $200 each month, the length of time I’d be making payments drops to 65 months (or 5 years and 5 months), and if I could kick it up to $500, I would be out of debt in 22 months — less than 2 years. While the numbers for the credit card balance and payments are made up, the math isn’t. You can use BankRate’s credit card calculator to figure the numbers for your own situation.

A lot of people suggest handling a mortgage in exactly the same way. Any payment you make beyond your monthly required payment goes directly towards the principal amount of the mortgage — meaning that you’re not paying off extra interest, and will, in the long run, save you money.

But there are some drawbacks to prepaying a mortgage in this fashion, and even to paying off debt quickly, depending on your interest rates. There’s no question that you should at least make the minimum payments each month, but there may be ways to take better advantage of other money.

Do you have a 401(k)? Depending on the interest on your debt, you may actually come out ahead in the long run if you can invest your money in a retirement account. You’ll have to run the numbers for yourself, but if your employer matches the money you invest in your 401(k), there is almost no reason that should convince you to not invest up to the matching limit. While prepaying your mortgage can save you money on interest, your employer is essentially offering you free money that you cannot get any other way if one of your benefits is a 401(k) matching program! And who wants to turn down free money?

You might also decide against making extra payments on any debt if those extra payments could put you in danger of building up more debt. If you have no cushion of cash, no emergency savings, you can put yourself in danger of racking up more debt if something unexpected happens. Having the money to deal with emergencies should take precedence over paying off debt quickly. However, if you can place the money you were planning to direct towards your mortgage or credit cards into savings and build up a decent emergency fund, there is no reason that you can’t start up those extra payments after you’ve built up a healthy cushion.

FICO Versus Credit Reports

When you’re looking at your credit report, depending on which of the three companies provided it to you, you may see your FICO score — a number between 300 and 850. But it can be difficult to understand just how that number corresponds to your credit score.

Your FICO score, or credit score, is based on the information in your credit report. It’s a sort of analysis of your payment history, ability to pay off credit and comparison to how other people have done in similar situations, all rolled into one little number. And that one little number can mean a big difference if you’re looking for a mortgage or other credit.

The problem that you may run into with a low FICO score is that FICO scores are all about making lenders’ lives easier. No matter whether you had some sort of extenuating circumstance that led to a low FICO score, you won’t even have the option of explaining it away to a lender. Instead, it’s up to you to raise your FICO score.

Unlike credit reports, which can show past mistakes, FICO scores can be relatively easy to repair. While you can’t raise your score overnight, you can bring it up. And when a lender looks at a FICO score, rather than your credit history, they don’t see how long your FICO has been at a certain level. In a way, FICO scores can even the playing field.

To improve your FICO score, you will need to take some steps to generally improve your credit:

• Make paying your bills in full and on time your priority. Late payments and outstanding bills significantly drag down FICO scores.
• Pay off credit cards — but don’t close your cards after you’ve paid them off. A high ratio of credit available to credit used can raise your FICO score.
• Give it time. You’ll need positive credit history to bring up your score, which is one of the reasons it’s hard for young people to get high FICOs.
• Don’t apply for any new credit. Sure, you’ll need to apply for that mortgage you’re aiming for, but limit your other credit: no new cards or accounts. The folks figuring FICO scores assume that if you’re looking for a lot of credit at one time, you’re in some sort of financial difficulty.

Lastly, building up a respectable FICO score can take some time. If you’re planning some big purchases in the future — like a home, start now! It may take a year to get your credit to the level you’ll need to get a decent mortgage. And once you’ve got your FICO up, make the commitment to keep it up. Keep up on your bills and financial commitments to keep away worries about FICO scores and credit reports.

Protect Your Identity with Fraud Alerts

With identity theft being so rampant and identity thieves becoming more and more resourceful (have you heard the one about the people who look for shredding and try to tape it together?) protecting your credit might feel like a bit of an uphill battle, especially when you’ve followed everyone’s advice and still have unauthorized charges show up on your credit statements or whole new accounts appear on your credit report. It’s enough to make you scream “That’s it! From now on I will only deal in cash and I am keeping it in my mattress!”

Trust us; we understand where you are coming from.

If you are very concerned about identity theft, or if you feel like you might be at risk for fraudulent activity, you might want to consider adding a fraud alert to your credit report. A fraud alert is basically a way of letting creditors know that you think something fishy might be going on and that anybody seeking credit in your name must verify that, well, they are you before the credit can be authorized.

There are three basic types of fraud alerts: the initial security alert, which lasts ninety days, an active duty alert which lasts for one year and an extended fraud victim alert which lasts for seven years. When you are trying to decide which alert works best for you, you should know that some of the longer options will want to see proof that your identity is in jeopardy.

The basic idea behind the fraud alert is this: When someone attempts to open an account in your name, a notice pops up for the credit company telling them that they need to verify your identity before granting credit to the applicant. The credit company then calls you to verify your identity and make sure that you are the person trying to open the account.

It’s sort of like those James Bond emulating Chase commercials that have been running on television the last few months.

Placing a fraud alert on your account is easy. You can usually start the process online or with a quick call to one of the three major credit reporting agencies. Of course, there are some drawbacks, namely that it kind of puts a damper on the “but I want it now!” of applying for a credit card—especially when you are offered those “no money down, no interest” credit lines in department and electronics stores.

For most people the ninety day fraud alert is sufficient to cover any nagging feeling that comes from wondering if you remembered to shred your last credit card statement before you took the trash to the curb (or dumpster) or if you lost your credit card (or wallet) and didn’t notice its absence right away. It shouldn’t be used because you don’t want to cough up the money for a decent shredder.

Your credit is incredibly important and you need to do everything you can to make sure that it (and your identity) is protected.

AFFIL: Finding Fair Lending

There are several ongoing efforts to make the American credit market a little fairer for borrowers: regulating the market to prevent predatory practices, informing consumers so that they can make better decisions, and other similar approaches. One of the crucial organizations in this crusade is Americans for Fairness in Lending. AFFIL is a non-profit organization dedicated to bringing regulation to the American lending industry. They’ve been in action since 2004 and been successful in bringing a number of credit issues to the attention of both government and consumers.

As a part of AFFIL’s mission, the organization provides a number of resources for consumers, such as helping prospective home buyers learn the signs of a predatory mortgage — the type that lenders don’t expect a borrower to ever be able to pay off but that a lender will make anyway in an effort to make some money.

AFFIL suggests the following to help home buyers avoid taking on a predatory mortgage:

• Use the basic rule of thumb: if it seems to good to be true, it is.
• Always shop around for a mortgage — the first numbers you see probably won’t be the best.
• Ask questions about the terms of the mortgage, and if you don’t understand them, ask for help from someone you trust (and who isn’t connected to the mortgage broker).
• Double check that, if your mortgage will have an adjustable rate, you will be able to afford an increase in payments.
• If an ad says “No Credit? No Problem!,” you should say “No Deal!”
• Walk out on any lender trying to use high-pressure sale tactics to get you to sign now.
• Never ever sign a document that is not completely filled in. If a lender says that he’ll fill something out later, run.

If you’re looking at buying a home, take the time to educate yourself about the terms that a predatory lender might offer you. In 2001 alone, predatory lending practices cost homeowners over $9.1 billion — and nobody’s been able to run the numbers on the subprime mortgage crash yet. Even if it takes you a little more time, finding a mortgage with no strings will pay off for you in the long term.

AFFIL also offers a free mortgage shopping guide (PDF). The organization also provides extensive information about lenders beyond those who offer mortgages, including credit cards, payday loans and student loans. And while AFFIL can’t do much for someone already in a credit jam, the organization maintains a list of ‘allies’ — organizations and individuals who specialize in specific issues. Other resources include help reporting debt collection abuses and a glossary of terms — an absolute necessity if you’re just starting to try to figure out your finances.

How to Stop Collection Calls

Who hasn’t been called by a debt collector? Even if your credit is good and you don’t have any outstanding debts, chances are you’ve had a collection company call your number looking for someone else. While there are a few companies whose collectors are professional and easy to deal with, there is a reason collection agents have gotten a bad rep. Those debt collection calls are almost never fun.

Even more irritating than the first contact with a debt collector is trying to tell the person on the other end of the phone that a) that the person they are trying to reach is not you, b) you do not owe the debt that they say you owe, c) that you are trying to pay the debt you owe but cannot finish paying it right now. Here is a tip: opt for option d) tell them nothing.

There are a lot of scammers out there trying to mask themselves as debt collection companies because they are trying make a quick buck. They will call you, tell you that you owe them “x” amount of money and that you need to pay the money immediately or they will take you to court to collect it. They want to scare you into giving them your bank information over the phone. If you get one of these calls, do not give them any information but instead ask them for their company’s information. If they won’t give you the company information, hang up!

Here is how to deal with the legitimate debt collection companies (and to get the scammers to stop calling you). Ask the caller for his name and the name and address of his company. Then tell the caller that you are ending the call and that any further communication needs to be in writing. You don’t have to be rude when you do this, simply state that you prefer to correspond through the mail and hang up.

Unfortunately telling the company to stop calling you is not going to make them stop calling. What you need to do is send a letter to the collection company. In this letter state that you were contacted by [agent's name] regarding your account with [company] and that you want to verify that their claim is legitimate. This letter is called a debt validation letter and you can find samples of them all over the internet. Just make sure that you include a clause in your letter that states the company is to conduct all further dealings with you in writing.

Here is a tip: When you send this letter make sure that you send it via signature confirmation. This is important because the signature card will confirm that they have received your letter. If the company calls you again they will be in violation of the Fair Debt Collection Practices Act.

Unfortunately, this letter is company specific. Should the collection company sell your account to another company, the calls could start again, so make sure you keep a copy of the letter saved in your computer.

Get Your Credit Report — For Free

No matter what your financial situation is — whether you’re getting ready to purchase a home or you’re working on getting out of debt — you should have a good idea of what’s on your credit report. Because your credit report is the key factor for lenders trying to decide just how much credit they’ll extend to you for mortgages, credit cards or car loans,not knowing your credit report can set you up for a nasty surprise.

As long as you live in the U.S., you are entitled to a free copy of your credit report every year from each of the three main reporting agencies (TransUnion, Equifax and Experian). And to make the process easy, all three reports are available through the same website: AnnualCreditReport.com. You can also obtain your credit report through a toll-free number or a mailing address available on the site. AnnualCreditReport.com is the only site that is actually required to give you a free copy of your credit report: there are hundreds of other websites available online that offer to do the same thing, but most of them are effectively scams — they require you to sign up for other services to get a free credit report or use other techniques to get money from you.

To receive a credit report from AnnualCreditReport.com, you’ll need to provide some personal information (including your Social Security number) and answer a series of questions about your past credit, such as what car you owned at a given time, in order to prove that you are, in fact, you. This system is intended to protect your credit information. If you can’t answer all credit questions correctly — and don’t worry if you can’t; I couldn’t and there wasn’t anything wrong with my credit — you’ll be asked to provide some further information via mail.

I don’t recommend getting all three credit reports at once — instead, you can, in a way, game the system. I get a credit report every four months: TransUnion in January, Experian in May and Equifax in September. This way, I have a good idea of what’s happening with my credit year round. Not all of my credit activity shows up on all three reports because some lenders report to only one or two, but I still have a general picture.

When you receive your credit report, you should check it over and make sure that you recognize each item on the report. If you find an item that you need to dispute, you will need to contact the credit reporting agency to both file a dispute and to request a fraud alert to be placed on your file, if you feel that you may have been a victim of identity theft.

Easy Ways to Build Credit

We all know how important it is to have credit. You can’t reserve a hotel room or rent a car without a credit card. Having a line of credit in a department store is often accompanied by a standing discount when you use your card to make purchases. Getting that first credit card can be a heady experience and you will probably be very tempted to run out and start spending. What’s the harm? You don’t have to pay it back for at least a month, right?

The truth is that you start building your credit rating from the moment you get your first line of credit—whether it is a store credit card, a major credit card, or take out a loan. Making sure that your credit stays healthy is entirely up to you. Here are a few easy-to-implement steps to help you build your credit.

1. Always make your payments on time. This should go without saying, but the sad truth is this: many people forget or put off paying their bills. All it takes is one missed payment (particularly if you don’t have a lengthy credit history) to derail your credit score. The easiest way to make sure that your payments get paid on time is to pay the bill as soon as it arrives in the mail. As long as you make all of your payments on time, your score can only climb!

2. Pay more than the minimum amount. Thanks to interest, if you only pay the minimum amount due every month, you could end up repaying your debt a few times before your card is completely paid off. Your bill will have a section that tells you how much interest you are charged and any service fees that will be applied to your account. Make sure you add at least that amount to your minimum payment every month. This will keep the interest from racking up and ruining your account.

3. Don’t go card crazy. If you have too many lines of credit (even if you never use them) you could end up being labelled a credit risk when it is time to apply for a car loan or a mortgage. Your lender might wonder just why you have that much credit available to you and why you haven’t used it.

4. The idea that you must use your credit every month to increase your credit score is a myth. Yes, you can raise your score by using the card and making your payments on time, but you can also raise your credit score by not using your credit unless you have to. Using credit the way it was meant to be used (in emergencies) proves that you are financially responsible. This will be important when it comes time to make major purchases.

You have probably heard most of these tips before. This is because they are the easiest ways to build your credit! Credit isn’t “free money” it is a responsibility and it is important that you take it seriously.